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TPP & TTIP | What Do They Mean For Manufacturing?

There’s been a lot of talk in the Media about the Trans-Pacific Partnership (TPP) this week as it’s finally been agreed upon between states after a 12 year negotiation. Though the TPP does not directly affect the UK there is a similar agreement in negotiation called the Transatlantic Trade and Investment Partnership (TTIP) which is between the US and various EU countries. These agreements are meant to encourage Free Trade and are being sold as ‘good for everyone.’ It’s very obvious that this is almost never the case in the world of business.

The first worry about these Trade Agreements is that they will hurt manufacturing by removing any of the current tariffs associated with sending low-end manufacturing abroad. High-end manufacturing won’t suffer as much, but with increasing investment flowing into the developing Pacific Rim nations, that could change over the next 20 years. There is already huge investment flowing into Vietnam and Malaysia for low-end manufacturing, especially textiles and plastics. In theory the reduction or removal of import/export tariffs is a good thing however it’s impossible for British firms to compete with the prices of goods created in nations with a fraction of our employee rights and employer responsibilities. Sources say this will be addressed by requiring Pacific Rim nations to improve their standards of production and working environment ostensibly to reduce the accidental importation of sub-standard products.

With China being completely frozen out of the agreement it’s hard not to see this as a move to shift the US’s massive trade deficit with Asia away from China. By moving a lot of import activity to nations like Japan, Vietnam and Malaysia the US is ensuring itself against being dragged down by a slowing Chinese economy and increasingly uncooperative trade relationship. Rising labour costs in China have also prompted electronics giants like Samsung to look elsewhere for the placement of their factories.

If your business does a lot of ‘manufacturing for manufacture’ such as making plant and assembly equipment now is a good time to strengthen your international ties!

There have been ongoing negotiations on areas such as the automotive industry over issues regarding how much of a single final product has to be manufactured in a TPP/TTIP nation in order to qualify for the tariff free status. Unfortunately we don’t yet have access to definitive answers to these questions because of the secretive way these negotiations have been handled up to this point.

Opening previously protected markets to competition is predicted to produce innovation and stop deformation of the markets. However many nations are pushing for their own special exemptions from the general ‘no protectionism’ rule such as with France and it’s fishing industry. It is important that the UK also carefully assesses if we have any industries that cannot handle international competition that we need to exempt from TTIP. We know the hit our fishing industry took from entering into the Common Fisheries Policy.

Whilst removing tariffs is supposed to remove barriers to import/export levels it fails to address the issue of a government intentionally reducing or increasing the value of their currency. Through their central banks and fiscal policy nations can have a heavy impact on their import/export ratio. China has been particularly guilty of this for the last 30 years, intentionally undervaluing and decreasing the value of it’s currency. With the removal of all tariffs it removes a level of national recourse to this action. We will be relying on our trade partners not to engage in any ‘trade war.’ TPP is aimed directly at addressing the problem the US and West in general has had with this problem emanating from China, however it runs the risk of simply moving the issue from one nation to another.

There are a host of other issues with TPP and TTIP including but not limited to:

Multinational businesses gain the right to sue National Governments for ‘loss of profit’ if a change to legislation hurts their expected business progress